Voting Agreements (M&A)

Developments

Variance continues in use of M&A voting agreements

Compare Pixar-Disney with Burlington Coat Factory LBO

Pixar-Disney 2006

53% stockholder limited his voting agreement to only 40%
Target is a California company

Burlington Coat Factory 2006

Controlling family committed to vote all its shares (61%)
Target is a Delaware company

See Precedent below

Variance in practice follows Omnicare decision (Del 2003)

Controversial 3-2 Delaware Supreme Court decision

Reversed Chancery decision

Deal protection provisions were invalidated

Force-the-vote provision ensured a shareholder vote
even if board changed its recommendation
Voting agreement with two shareholders ensured
requisite shareholder approval
No effective fiduciary out

Court applied enhanced scrutiny standard

Combination of deal protection provisions was
coercive and preclusive
Prevented consideration of any subsequent
superior proposal
Target must retain a meaningful fiduciary out

Dissent instead focused on Board's good faith efforts

Target company was in distress
Agreement was struck after lengthy sales process
At time deal was struck, target only had the one offer

Unusual (and distinguishable) facts

Target board engaged in exclusive negotiations
Target board became aware of potential competing offer
Two shareholders had 65% of the vote
but only 20% of the economics (dual class stock)
Board approved the voting agreement and
controlling shareholders participated as directors

Distinguished by Orman v Cullman (Del Ch 2004)

Upheld a lock-up voting agreement used in a
going private merger transaction

Controlling shareholders agreed to vote for the deal
Agreed to vote against any other deal for 18 months

Target company retained a meaningful fiduciary out

Controlling shareholders were "bound only in their capacities as shareholders"

Board could entertain a subsequent superior proposal
Board could withdraw its recommendation
Deal was subject to majority of the minority approval

"[U]nlike the situation in Omnicare, the deal protection mechanisms at issue in this case were not tantamount to 'a fait accompli.' "

Board and minority shareholders could pursue an alternative transaction, theoretically
After a wait of 18 months

Statutes

Delaware GCL § 218(c)
Voting trusts and other voting agreements

Omnicare v NCS Healthcare Del 2003

Opinion

818 A.2d 914 (Del 2003)

PDF version

Agreements at issue:

Overview of Opinion

Parties

Procedural Background

Veasey, Chief Justice
Steele, Justice, joins dissenting

Orman v Cullman Del Ch 2004

Opinion - Chandler

Background I

Analysis II

Summary judgment standard II.A
Defendant's basis for summary judgment II.B
Plaintiff's arguments II.C

Special committee II.C.1
Voting agreement II.C.2
Deal protection mechanisms II.C.3

ConclusionIII

Securities Act §11 Liability Issues

APA Excelsior v Premiere Technologies 2007

11th Circuit denies plaintiff recovery under §11

Plaintiffs had entered into lock-up voting agreements
Plaintiffs were sophisticated investors with due diligence rights

Opinion 2.02.07

Precedent M&A Voting Agreements

2006

Golden West / Wachovia

Voting agreement - H Sandler
Voting agreement - M Sandler
Voting agreement - B Osher

Deal page

Portal Software / Oracle

Tender and voting agreement
For use in a two-step merger
Deal page

Lexar Media / Micron Technology

Shurgard Storage / Public Storage

Pixar / Walt Disney

California company
53.1% stockholder (Steve Jobs)
Voting agreement limited to 40% of outstanding shares
Cutback, presumably to conform to Omnicare
Given the strategic nature of the deal,
and the full price being paid, Disney probably had a lesser concern with risk of a competing offer

Deal page

Burlington Coat Factory / Bain Capital

Delaware company
61.0% affiliated group (Milstein family)
Appears to be the kind of "fait accompli" that so concerned the Omnicare majority
Bain Capital presumably determined that an
"Omnicare cutback" to 40% would leave
too big a block of of stock in play